Business and Finance
Ian Winer is an investor, philosopher, humanitarian, writer and public speaker who connects people to the truth of market places and human behavior. Ian is the author of the book, Ubiquitous Relativity: My Truth is Not the Truth. A regular contributor to CNBC, Fox Business, The Wall Street Journal, Bloomberg, and Reuters, to name just a few, he is known for seeking connections through non consensus thinking and making it relatable to everyone.
The President has threatened to close the Southern Border. Avocado prices doubled on that news. This is a very small example of a potentially very bad idea.
Avocado prices doubling will be a headwind to all the little eateries around Los Angeles that sell Avocado Toast to hipsters. But, it is more interesting to look at this through a global trade lens and how nothing operates in a vacuum. What does it mean when the cost of avocados doubles in a week? What will it mean if the price continues to rally if we shut the border?
Some may say - who cares and to be sure, the avocado market is not going to save or topple Global GDP. But what about those little eateries? If the input cost of a good product I sell goes up substantially, that is not good. Either the sales of the eateries will suffer if they raise prices in conjunction with the move in avocado price or they will lose margin and profits if they do not pass the cost on to consumers. Neither of those scenarios are good and when prices spike in commodities we see this effect. Oftentimes, the eatery will not raise the price of Avocado Toast in line with the cost of Avocados, but instead look to cut costs elsewhere to offset their profit hit. This could come in the form of headcount reductions or cuts to salaries. Now if I were a waiter at one of these eateries and was told I lost my job today because the restaurant needs to cut costs, it is likely I would then have to rein in my own spending on different consumables. If I stop spending, then that will hurt other retail industries, who then may have to in turn cut their headcount.
The point is not to say that the whole system will tumble like a bunch of dominos if avocado prices keep going up. But, we don't make avocados here in the U.S. (or very little) so it is not like the producers in the U.S. are going to benefit.
Multiple this by a few Trillion and you can start to see why Tariffs and trade Wars need to really be examined closely before implementation because there can be severe unintended consequences.
In the meantime, I will stick to pancakes.
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